How has monetary policy helped in nurturing a sluggish recovery? What expectations should the public have for the role of monetary policy in the future? How do Federal Reserve decision-makers confront or cope with uncertainty when designing and implementing monetary policy? President Charles Evans of the Federal Reserve Bank of Chicago and Lars Peter Hansen, 2013 Nobel laureate from the University of Chicago, explored these questions in an insightful and open discussion held at the Federal Reserve Bank of Chicago.
This video is part of our Economics Amplified podcast series.
Finding•Mar 17, 2022
What Do the Data Tell Us About Inflation Expectations?
Francesco D’Acunto, Ulrike Malmendier, Michael Weber
Recent research reveals that household inflation expectations are biased upwards, dispersed across individuals, and volatile over time, contrary to prevalent economic theory.
Topics: Monetary Policy
Insights / Research Brief•Feb 01, 2022
Liquidity, Liquidity Everywhere, not a Drop to Use: Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity
Viral V. Acharya, Raghuram Rajan
Despite a significant expansion in central bank balance sheets, some markets like the US money market have experienced increasing interest rate volatility, including significant spikes in the repo rate, notably in September 2019 (see Copeland, Duffie and Yang (2021), Correa, Du, and Liao (2021), D’Avernas and Vanderweyer (2021), and Yang (2021)). This apparent disruption in money markets that depend intimately on the availability of liquidity seems puzzling when the cash and central bank reserves held by the US private sector at the end of 2019 were around 4 times their holdings before the Global Financial Crisis in 2007. Greater liquid holdings do not seem to have made markets for liquidity more immune to liquidity shocks. Indeed, markets were disrupted yet again in March 2020 at the onset of the COVID-19 pandemic and the banking system was found short in its ability to accommodate the demand for liquidity. In response, the Federal Reserve expanded its balance sheet yet more (see, for example, Kovner and Martin (2020)), buying financial assets from the private sector and placing large quantities of liquid reserves with it (or promising to do so). Where had all the prior liquidity gone?
Topics: Monetary Policy
Finding•Jan 25, 2022
The Expected, Perceived, and Realized Inflation of U.S. Households Before and During the Covid19 Pandemic
Olivier Coibion, Yuriy Gorodnichenko, Michael Weber
In normal times, realized inflation barely differs across observable dimensions; however, low income, low education, and Black households experienced a larger increase in realized inflation during the pandemic than other households did.
Topics: COVID-19, Monetary Policy